Consultation on major changes to UK competition regime

The Department for Business, Innovation and Skills has published a consultation paper on the options for reforming the UK’s competition regime. Reforming the competition regime forms a key part of the Government’s economic growth agenda with Ministers particularly concerned that there are too few competition cases and those that there are, take too long to reach a conclusion. The paper also takes forward the agenda for reform of public bodies, with a single competition authority destined to replace the Office of Fair Trading ("OFT") and Competition Commission ("CC").

The main proposals are detailed below. If you would like to discuss the potential impact of any of the proposed changes please contact us. The consultation is open until 13 June 2011.

Competition & Markets Authority

The proposal to merge the OFT and the CC to create the Competition & Markets Authority ("CMA") has been widely reported, with much of the discussion focusing on how to preserve the benefits of "fresh eyes" review afforded by the current two-body structure, whilst securing the efficiency gains offered by the move to a single authority.

Under the current system, merger and market investigations are handled by the OFT at phase 1 and the CC at phase 2, so there is full "fresh eyes" review. On appeal to the Competition Appeal Tribunal (“CAT”), judicial review principles are applied. For antitrust cases (i.e. Chapter I and Chapter II investigations), there is no separation of phase 1 and phase 2: the OFT is investigator and decision-maker and the CC is not involved. This is similar to EU investigations under Articles 101 and 102. The intensity of review on appeal reflects the lack of separation, with antitrust cases appealed to the CAT subject to review on their merits.

Whilst Ministers do not have settled views on the structure and operation of the CMA, the following points are made in the consultation document:

a distinction should be retained between the initial phase 1 review and in-depth phase 2 investigation for merger and market investigation cases;

there is a balance to be struck between securing the process synergies that a single body can deliver and tailoring processes for each type of intervention;

the role and nature of panels in decision-making is likely to depend upon the type of intervention; and

for appeals, it may be possible to change the scope of review from merits to judicial review (assuming such a change would be compatible with Article 6 ECHR).

Ourcomment: moving to a single authority is likely to deliver benefits in terms of having a single voice championing the UK regime and savings, for example, of time currently spent on managing the relationship between the OFT and CC. For merger and market investigations, the separation of powers between OFT and CC often results in burdensome duplication of submissions. However, the quality of the CC’s analysis is in most cases high. It will be important to ensure that the CMA benefits from the depth of knowledge and experience of those currently serving the CC. For antitrust cases, unless the CMA becomes a prosecutorial authority, pleading cases before a fully independent decision-making body, full merits-based appeals to the CAT should be retained.

Merger Control

The consultation document raises the prospect of moving to a mandatory and suspensory merger filing regime, similar to that under the EU Merger Regulation and in all other EU Member States. The proposal appears to have been prompted by concerns firstly, that the current voluntary filing system allows some mergers to escape scrutiny and secondly, problematic deals are implemented by the parties before the OFT or CC can investigate, making it more difficult to remedy any anti-competitive effects. If a mandatory regime were to be introduced, the jurisdictional thresholds would almost certainly be changed to reference only turnover (which can be objectively verified). The possibility of a hybrid regime, with mergers which meet turnover thresholds being subject to mandatory notification and pre-clearance, and those falling below the turnover threshold but meeting the share of supply test being open to investigation by the CMA but not mandatorily notifiable, is also suggested.

Our comment: the current voluntary filing system works well and focuses resources on transactions which raise substantive competition concerns. Under mandatory filing systems, substantial resources are wasted preparing and processing notifications in respect of transactions which meet the jurisdictional thresholds but raise no substantive competition concerns.

Market Investigations

The Government considers the market investigation powers to be one of the key strengths of the UK competition regime. The proposals for change in the consultation document include:

extending the powers so that the CMA can carry out investigations into practices that have an adverse effect across a number of different markets (the examples given include: high switching costs, below cost selling and the provision of extended warranties);

introducing powers to report to the Government on public interest issues alongside competition issues;

extending the super-complaint system to SMEs; and

reducing timescales.

Our comment: there is a danger that extending what are already broad powers will enable and encourage regulatory intervention in respect of large swathes of the economy where there is a general feeling that something is not quite right. Market investigations are extremely resource intensive and should only be undertaken where there are clearly identifiable market failings which will be best remedied by regulatory intervention and where the cost of intervention is not excessive when set against the cost of the market failings.

Antitrust Enforcement

One of the key concerns that Ministers have expressed is that there are too few antitrust cases in the UK. The OFT brings fewer antitrust cases than most other EU national competition authorities and takes significantly longer to prosecute the cases that it does bring. The consultation document suggests that this may be due to difficulties faced by the OFT in establishing and upholding a case. The options for reform include:

stick with the current administrative system under which the OFT is investigator and decision-maker, whilst building on the streamlining and other procedural improvements that the OFT has already initiated and retaining full merits appeal to the CAT;

enhance separation within the administrative system by creating an Internal Tribunal within the CMA and have the CMA Executive (or sectoral regulator) bring cases before the Internal Tribunal with appeal to the CAT by way of judicial review; or

move to a prosecutorial approach (similar to that in the U.S.) where the CMA (or sector regulator) would prosecute cases before the CAT and the CAT would then decide on infringement and penalty.

Our comment: an Internal Tribunal within CMA will not deliver sufficiently independent oversight to justify moving from a full merits appeal to appeal by way of judicial review. CMA will perform to its best only if it faces the prospect of full merits review before the CAT, or if it has to prosecute suspected infringements before the CAT with the CAT as decision-maker.

Criminal Offence

All of the options for change in the consultation paper envisage getting rid of the requirement for dishonesty in the criminal cartel offence. The options for change are:

removing the requirement for dishonesty and instead providing guidance to prosecutors;

removing the requirement for dishonesty and redefining the offence so that it does not catch specified “white-listed” agreements;

replacing dishonesty with “secrecy”; or

removing the requirement for dishonesty and defining the offence so that it does not catch agreements made openly.

Our comment: the requirement for dishonesty should be retained. All of the alternative proposed options (apart, perhaps, from secrecy) would create unwelcome uncertainty about the scope of the cartel offence. Whilst the desire for change is understandable, particularly after the collapse of the prosecution of BA executives, that had nothing to do with the requirement for dishonesty.